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Australian international arbitration update

There have been two recent decisions of note. The first (Warner Brothers) involved a Californian arbitration agreement incorporated in “standard terms and conditions” while the second (Kraft) saw arbitration proceedings in New York injuncted while court proceedings in Victoria continued.

Both decisions also bring into focus the question of confidentiality in arbitration proceedings, which is enshrined in sections 23C to 23G. Confidentiality of proceedings is one of the advantages of arbitration over litigation, in common-law countries at least for parties who do not wish to air their disputes in public. The parties to these two cases appear to have lost that advantage.

Mad Max is a highly successful film franchise, owned by the Australian producer George Miller. In 2009 Australian companies associated with Miller contracted with Warner Brothers for the production of the next instalment (Fury Road). Under the contract the Miller interests were entitled to a $7 million bonus if production costs were kept under $157 million. A dispute arose between the parties around the entitlement to the bonus.

The dispute involved four parties including two Australian companies associated with George Miller:-Kennedy Miller Mitchell Films Pty Ltd and Kennedy Miller Mitchell Services Pty Ltd (together KM) as well as the Australian Warner Brothers subsidiary (WB) and its US parent, Warner Brothers Entertainment Inc (WBE).

KM contracted with WB pursuant to a short-form Letter Agreement, which included a catch-all clause which provided:

21. The balance of terms will be ….WB standard for “A” list directors and producers, subject to good faith negotiations within WB’s….customary parameters.”

KM commenced proceedings in the Supreme Court of NSW against WB and WBE who applied for a stay of the proceedings on the basis that the WB standard terms referred to in clause 21 incorporated a referral of all disputes to JAMS arbitration in California.

The judge at first instance dismissed the application for a stay on the basis that WB (as opposed to WBE) had not proved that it had standard terms which incorporated a reference to JAMS arbitration.

The judge considered that “standard” meant “used in a sufficient preponderance of cases, where [WB] contracts with A list directors, to make its use usual.” The judge observed that this would require a comparison of the number of occasions on which WB had contracted on terms other than the “standard” terms. The evidence before the judge included many examples of WBE contracting on “standard” terms, but no examples of WB contracting on those terms.

The Warner interests appealed to the NSW Court of Appeal, who allowed the appeal and granted the stay, Bathurst CJ giving the leading judgment.

The Court of Appeal considered the question to be not what “WB standard terms” might be generally, but whether a clause submitting disputes to arbitration in California was “WB standard for A-list directors and producers” within the meaning of clause 21. If the Court were to find that there was such an incorporation, the Court then had a duty to “do its best to identify the terms intended if there is some doubt” (Lief Investments Pty Ltd v Conagra International Fertiliser Co (Court of Appeal (NSW) 16 July 1998, unrep). This is potentially significant from an evidentiary perspective. For example, rather than determining that WB had not proved the existence and use of standard terms, the Court of Appeal accepted that evidence of the use of standard terms by the US-based Warner Brothers companies was in fact evidence about the use of those standard terms by companies in the Warner Brother group.

Bathurst CJ considered that terms which are “WB standard for A-list directors and producers” in the present context can be described as terms which are habitually proffered by companies in the Warner Brother group for agreements with A-list directors and producers.”

Pursuant to the International Arbitration Act 1974 (Cth), WB was entitled to a mandatory stay of the Australian proceedings. WBE was not party to the Letter Agreement and was not therefore entitled to a mandatory stay. Despite that, the Court expressed the view that the Australian proceedings should be stayed in their entirety because of the close connection between KMs claims against WBE, and the claims against WB but gave leave to KM to apply to have the stay lifted on seven-days’ notice.

Crunchy or smooth?

Kraft Foods Group Brands LLC v Bega Cheese Limited [2018] FCA 549

When should a court issue an anti-arbitration injunction?

In or about 2012, Kraft Foods Group Brands LLC (Kraft) entered into a Master Licence and Ownership Agreement (Master Agreement) with Mondelez International Inc. The Master Agreement contained a referral of disputes to arbitration in New York. In 2017 Bega Cheese Limited (Bega) acquired the Australian interests of Mondelez and became bound by the terms of the Master Agreement.

Disputes arose between Kraft and Bega relating to certain advertising Bega was running in Australia. The following then occurred:

on 27 September 2017 Kraft served a Notice of Dispute under the Master Agreement and calling for arbitration

on 5 October 2017 Bega responded disputing that it was bound by the Master Agreement

on 20 October 2017 Kraft commenced proceedings in the US District Court for the Southern District of New York, seeking to compel Bega to submit to mediation and (if necessary) arbitration

on 9 November 2017 Kraft commenced proceedings in the Federal Court of Australia, alleging breaches of section 18 the Australian Consumer Law which provides that “A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

13 February 2018 Kraft commenced arbitration in New York

Bega applied to the Australian Federal Court for an anti-arbitration injunction restraining Kraft from proceeding with the arbitration in New York.

Consideration

The Federal Court has the power to issue anti-suit and anti-arbitration injunctions under its implied and equitable powers if the duplication of proceedings will interfere with or have a tendency to interfere with the Federal Court proceedings or would be vexatious or oppressive.

Central to the consideration is whether there was the prospect of inconsistent decisions being issued in the two jurisdictions.

To this end, Bega argued that the subject matter of the disputes in the New York arbitration and the Federal Court were essentially the same, while Kraft argued that they were entirely different.

Having concluded that there was a substantial degree of overlap, the Court framed the question as whether restraining the taking of any further steps in the arbitration was necessary for the administration of justice to protect the court’s own proceedings or processes (which Kraft had invoked), and considered that it was, thus granting the injunction.

While strictly unnecessary, the Court also considered the equitable basis for granting an injunction but made no determination.

On its face, this decision may appear at odds with the prevailing run of authorities preferring arbitration over court proceeding, particularly given the right to a mandatory stay featuring in the International Arbitration Act. Where this case differs is in that it was Kraft who commenced both the arbitration and Court proceedings both of which it sought to advance.

In fact, Kraft submitted that if Bega wished to avoid duplication of proceedings, it should have sought a stay of the Australian proceedings in favour of the arbitration.

The Court rejected this submission observing that Bega was under no obligation to apply for a stay.